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Modelling bank lending in the euro area: A non-linear approach

Leonardo Gambacorta and Carlotta Rossi ()
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Carlotta Rossi: Banca d'Italia

No 650, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper investigates possible non-linearities in the response of bank lending to monetary policy shocks in the euro area. The credit market is modelled over the period 1985-2005 by means of an Asymmetric Vector Error Correction Model (AVECM) involving four endogenous variables (loans to the private sector, real GDP, lending rate, and consumer price index) and one exogenous variable (money market rate). The main features of the model are the existence of two co-integrating equations representing the long-run credit demand and supply and the possibility for loading and lagged-term coefficients to assume different values depending on the monetary policy regime (easing or tightening). The paper finds that the effect on credit, GDP, and prices of a monetary policy tightening is larger than the effect of a monetary policy easing. This result supports the existence of an asymmetric broad credit channel in the euro area.

Keywords: monetary policy transmission; credit market; credit view; asymmetries (search for similar items in EconPapers)
JEL-codes: C32 C51 E44 E52 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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Journal Article: Modelling bank lending in the euro area: a nonlinear approach (2010) Downloads
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